Payless ShoeSource said last week that it may not be able to meet its financial covenants with its lender after the discount footwear retailer slashed its earnings forecast for Q2 in the second time in less than two weeks.
It appears that inventories of spring goods, particularly sandals, are starting to pile up as cooler-and wetter-than expected weather has stymied sales. PSS said it now expects a nominal loss or slight profit for the second quarter and sees pressure on earnings continuing in the second half of the year. Comps store sales for Q2 are expected to be down in the “low double-digits”.
Payless expects the overall market “to be increasingly promotional as retailers act aggressively to clear their seasonal product” and “intends to defend its market share and clear spring and summer merchandise through a series of promotions and more aggressive markdowns.” The resulting gross margin erosion will have a huge impact on earnings, while average unit sales are expected to decline.
Earlier this month, Payless had warned that Q2 results would fall short of previous profit forecast of 40 cents to 45 cents per share and full-year earnings would miss its lowered forecast for profit of $1.25 to $1.35 a share.
Thomson First Call average analyst estimates saw profit of 29 cents per share for second quarter.
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